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True Risk Valuation™ has been developed and designed to account for the inescapable fact that we live and operate in a "Learn and Adapt" world. Organizations and individuals develop strategies and manage the risks surrounding those strategies by Learning and Adapting behaviour. For example, when a company develops an investment strategy, for the organization as a whole or for a particular project, assumptions are made about the outcome of different uncertainties the company believes it will have to face over the investment horizon. Although the original predictions about the uncertainties will almost always be wrong, over time, the company will learn how these uncertainties actually unfold. Management will then adapt to the new realities using whatever flexibility is available to them. This is "Learn and Adapt" behaviour. TRV™ builds valuation models based on this fundamental truth about Risk Management behaviour.
Intuitively TRV™ relies on traditional financial analysis, which it enhances, by building into the spreadsheet model:
- A Strategy piece to help management think about and articulate their problems and opportunities over the investment horizon,
- A Risk Analysis piece to help management understand and quantify the uncertainties and Risk-Return tradeoffs they will have to manage over the investment horizon,
- A Risk Management piece to help management articulate and value Risk Management strategies over the investment horizon.
